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November 3, 2017

Will Lebanon’s highest court strike down the new budget law? | Executive Magazine

This summer, after years of procrastination, Lebanon passed a law increasing salaries for public sector workers. To help offset the salary increase, Parliament approved new taxes. But, in a surprising move, a group of parliamentarians challenged the constitutionality of the tax law in front of Lebanon’s highest court, the Constitutional Council, which ruled in their favor by annulling the new taxes.

Since then, Parliament has re-legislated the tax law, postponed full implementation of the salary scale, and legislated a budget. But Parliament legislated the budget through measures that may have broken the Public Accounting Law of 1963 and violated Lebanon’s constitution. In the event of a challenge, the high court’s previous ruling on the tax law could set the stage for a showdown between lawmakers and the judiciary over public finances.

Pistols at dawn

For much of 2017, as Executive has reported, Lebanese officials did little to explain to the public what new taxes they wanted to impose or increase, and muddled their function: The taxes were not designed for financing the salary increase, but for covering the deficit that was made bigger by the increase.

In August, both the salary scale and the taxes went into effect, and the latter was challenged via the Constitutional Council by 10 members of Parliament. (Article 19 of the constitution, which established the high court, lays out a very narrow pathway to challenge legislation, allowing only a limited number of officials to appeal a law to the Constitutional Council. These officials are: the Speaker of Parliament, a minimum of 10 MPs from Parliament, the President of the Republic, the Prime Minister, or, for cases related to religious matters, the respective leaders of religious communities. The statute of limitation is short: Laws can only be challenged within 15 days after their publication in the Official Gazette).

The Constitutional Council ruled in favor of the appeal, Executive reported in October, finding that the tax law was unconstitutional.

The high court ruled that Parliament violated its own internal voting rules when ratifying the law, passing it via a show of hands rather than a roll call. “We do not have any idea who voted for or against the law,” says Nizar Saghieh, head of the Legal Agenda, a non-profit organization advocating for the rule of law. The Constitutional Council also ruled that Parliament could not legislate new taxes when it was not giving the government permission to collect the taxes already on the books. Karim Daher, a public-finance lawyer and managing partner at Haddad Baroud Daher-Tria Law Firm, told Executive, “The high court ruled that [Parliament] cannot vote any new tax and [the government] cannot collect any tax without authorization, only provided by virtue of the budget law.” The budget is the document where the government projects expenditures and revenue, and Parliament gives its approval of this plan by voting it into law. Failing to vote on a budget for 12 years meant that Parliament essentially did not authorize the government to collect or spend any money (why has there not been a budget, and how the government spent money while it was not authorized to do so).

It was a landmark decision, says Mireille Najm-Checrallah, a lawyer who specializes in constitutional law at Najm Law Firm, describing the Constitutional Council’s ruling as its most important in its nearly 30-year history. The high court “could have cancelled the law for formal reasons, without going so deep in its interpretation of the violations,” she says. “In this decision, the Constitutional Council condemned the political class for their omissions since 1993. It’s a first, and that’s why its ruling was so disturbing to the political class. If you see the reactions, from [Prime Minister} Hariri to [Minister of Public Works Youssef] Fenianos to [Parliament Speaker Nabih] Berri, stating that the [Constitutional Council] overstepped its mandate,” Najm-Checrallah told Executive. Before the high court was established in the mid-1990s, there was no oversight of Parliament. “Now you have an authority counterbalancing, the so-called checks and balances in a democratic system, and really one of the first times it does so.”

A perfect design for a screw-up

In mid-October, Parliament met for its second legislative session and ratified Lebanon’s first state budget in 12 years. But the budget law passed with a similar pattern of violations as that of the tax law, and barely half of parliamentarians voted on the final bill. To circumvent the constitutionally required closure of accounts, Parliament inserted a clause in the budget law allowing it to delay any audit for 12 months (well after parliamentary elections next spring). That is if the budget law is not challenged at the Constitutional Council.

In speeches during the session before the vote, a small number of MPs opposed adoption of the 2017 budget law for different reasons. Some MPs refused to approve the budget without an audit of spending and revenues for all the years Lebanon was without a budget, saying this would violate article 87 of the constitution. Other MPs rejected a vote on the 2017 budget because the fiscal year has almost passed,and much of the money has already been spent or collected: They argued that Parliament, if it were to vote on any budget, should have legislated the 2018 budget, and charged that failing to do so would be a violation of article 64 of the constitution. Others protested the order of business that Parliament conducted in the legislative session. On the first day of the session, Parliament elected committee members, which dissenting MPs argued violated article 32 of the constitution, which states that in Parliament’s second legislative session it should first deal with the budget before voting on any other matters. Complicating things further, the re-legislated tax law was published in the Official Gazette on October 26; at the time of this writing, the budget law has not been published. The publication of the tax law, which makes official that the new taxes are now being levied, appears to be a disregard of the high court’s ruling because the taxes went into affect before the budget did. It was not clear as Executive went to print whether or not the budget would be challenged at the high court. Some of the MPs who brought the suit over the tax law were considering challenging the budget law in late October, but as Executive went to print, fewer than 10 were supporting such a move publicly. Should Parliament’s recent fiscal legislation proceed unchallenged, it would represent a triumph of parliamentary dealmaking over the court’s objections.

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